Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at V-One Tech (KOSDAQ:251630) and its ROCE trend, we weren't exactly thrilled.
Return On Capital Employed (ROCE): What is it?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for V-One Tech:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.082 = ₩7.0b ÷ (₩95b - ₩9.1b) (Based on the trailing twelve months to September 2020).
Therefore, V-One Tech has an ROCE of 8.2%. On its own, that's a low figure but it's around the 9.8% average generated by the Semiconductor industry.
Check out our latest analysis for V-One Tech
Above you can see how the current ROCE for V-One Tech compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for V-One Tech.
What Can We Tell From V-One Tech's ROCE Trend?
In terms of V-One Tech's historical ROCE movements, the trend isn't fantastic. Over the last four years, returns on capital have decreased to 8.2% from 34% four years ago. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.
On a related note, V-One Tech has decreased its current liabilities to 9.6% of total assets. So we could link some of this to the decrease in ROCE. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.
Our Take On V-One Tech's ROCE
Bringing it all together, while we're somewhat encouraged by V-One Tech's reinvestment in its own business, we're aware that returns are shrinking. Since the stock has declined 33% over the last three years, investors may not be too optimistic on this trend improving either. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.
If you'd like to know more about V-One Tech, we've spotted 4 warning signs, and 1 of them shouldn't be ignored.
While V-One Tech isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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About KOSDAQ:A251630
V-One Tech
Engages in the manufacture and sale of inspection equipment in South Korea, China, and internationally.
Adequate balance sheet low.
